The Economic rationale behind spinoffs
Year of the event
Description of the case
Long ago, Yahoo bought a 40% participation in a tiny Chinese firm for a modest amount. In 2015, this participation had grown to become larger than the value of Yahoo itself, though Yahoo owned only 20% of Alibaba by then. In fact, in 2015, Yahoo’s core business was worth around $5bn, while its participation in Alibaba was worth circa $40bn. Under the pressure of shareholder activist Starboard Value, Yahoo planned to spin off its participation in Alibaba in a new entity, and give the shares to its shareholders. That was a major issue, as the DOJ was looking forward to taxing heavily this transaction, which would result in the loss of $16bn (40%). In 2016, Yahoo found another suitable solution: instead of making a spin-off of Alibaba’s shares, Yahoo would sell its core business, and the historic Yahoo would become a shell holding Alibaba Stock as well as various other participations and licenses. The reborn holding entity was named Altaba. The transaction was completed as planned, with Verizon acquiring Yahoo in June 2017. Yahoo, having cleared the shadow of the potential tax payment, appreciated sharply.
- Spinoff aim at making an entity more valuable by being splitting in two. The discrepancy can come from taxes.
- Activists target firms with inconsistent structures or large holdings/long term investments/cash.
- http://businesscycles.eu/tech/cowcot-entreprises-yahoo-contre-les-activistes/ Business Cycles (FR), Yahoo contre les activistes
- Bloomberg, Yahoo Would Rather Not Pay Taxes on Its Alibaba Shares
- Techcrunch, Verizon buys Yahoo for $4.83 billion